Trafigura has $14 billion headache after surge in overdue debts

A solid headline profit for commodity trading giant Trafigura Group masked something unusual beneath the surface: a significant chunk of its customers have stopped paying.

Trafigura was owed US$10.5 billion (S$14.12 billion) by trade debtors at the end of March, its half yearly report showed on June 6. That’s not unusual for the commodity trading giant, which sells hundreds of billions of dollars worth of oil, gas and metals every year. 

But this time, a much larger proportion of them were late paying. Trafigura said that 15.8 per cent of its receivables were more than 60 days overdue, nearly three times the level at the end of September. That implies that Trafigura had US$1.66 billion of receivables more than 60 days overdue, up from US$594 million six months earlier.

Even more unusual: Trafigura took a significant loss in relation to those receivables. It recognised expected credit losses of US$330.2 million, up one hundred-fold from just US$3.3 million at the end of September. 

In more than a decade of Trafigura accounts that are public, the company’s expected credit loss on its receivables has never been higher than US$6 million. In its 2015 annual report the company even boasted that a historical analysis from 2000 to 2015 showed that Trafigura “has demonstrated that there is no significant expected credit risk arising from its trade receivable portfolio and therefore no expected credit loss”.

Mr Stephan Jansma, Trafigura’s incoming chief financial officer, explained the situation earlier on a company video accompanying the results: “If you look at commodity prices where they are today they’re not the lowest, so that means that importing countries from time to time will have issues in their payment profile, as well as higher interest rates of course has an effect on some of our customers as well,” he said. “And hence it’s logical that we have more overdues.”

One part of the explanation may lie in Mongolia. Bloomberg reported in February that Trafigura was facing hundreds of millions of dollars in losses related to its oil activities in Mongolia, and the company said at the time that it had recently agreed repayment schedules with oil products customers in the country.

The size of the potential losses is large relative to Mongolia’s tiny oil market. Mongolia’s annual oil consumption amounted to just 35,000 barrels a day in 2022, according to the US Energy Information Administration, worth about US$1 billion a year at current prices. 

On June 6, a Trafigura spokesperson said the overdue receivables were “spread geographically and over a relatively large number of counterparts.” 

“We work with a large number of customers in emerging markets, facing higher commodity prices combined with high interest rates, and we have a good track record of recovering outstanding balances (both trade receivables and prepayments).” BLOOMBERG